In 2005 Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act(BAPCPA) which greatly overhauled existing bankruptcy laws.  One such provision in the code seemed to be a direct response to some high profile debtors who would relocate to Florida and shortly thereafter become eligible for Florida’s Homestead Exemption.   In short, many of these debtors were basically converting non-exempt assets into exempt assets in order to protect as much property as possible from their creditors.   OJ Simpson is one such example.

In response Congress enacted Section 522(o)(4) in order to to preclude Florida’s “virtually limitless” homestead exemption in instances of fraud.  See In re Osejo, 447 B.R. 352, 354 (Bankr. S.D. Fla. 2011).  Under this section, Florida’s homestead exemption may be denied or reduced to the extent a debtor, acting with the intent to hinder, delay or defraud his creditors, converted non-exempt assets into exempt assets within ten years of filing his bankruptcy petition.

The conversion of non-exempt property into exempt property prior to filing is not necessarily fraudulent.  This is still especially true when it comes to Florida’s Homestead Exemption.   Courts have repeatedly held that a debtor’s homestead claim is presumptively valid.  This means that an objecting party would need to establish by a preponderance of evidence that the debtor acted with intent to hinder, delay, or defraud creditors.   The mere conversion of non-exempt assets into exempt assets is not enough to prove intent without extrinsic evidence of fraud.

See In Re: Cook, 23 Fla. Law Weekly B190 (Bankr.N.D. Fla 2011).

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

 

If you are in a financial situation in which bankruptcy might be an option you should be wary if you have a bank account with Wells Fargo.  Wells Fargo has a national policy in place in which they automatically freeze the accounts of any customer who files a Chapter 7 Bankruptcy.  Normally when an individual files for bankruptcy, a bankruptcy estate is created which consists of that person’s non-exempt assets.  A Bankruptcy Trustee is appointed to administer the estate.  In most instances an individual can exempt a good portion of their assets from the bankruptcy estate meaning that they get to keep those assets.  This includes bank accounts.

Wells Fargo’s policy is that they automatically freeze bank accounts and wait for directions from the Trustee on when or if they should release the funds.  Wells Fargo does this even if you do not owe them any money, and even if it is likely that the all the funds in the account will be exempt.  If all or a portion of the funds are exempt then the Trustee will order Wells Fargo to release the money back to you.  However, it usually takes the Trustee about a month or so to determine if the funds are exempt.

Currently, Wells Fargo is the only bank that will freeze your account if you do not owe them money.  They have recently merged with Wachovia so it is possible that Wachovia might also institute the policy.  If you are in a situation in which bankruptcy might be an option, it is recommended that you do not have an account with either of these institutions.  Wells Fargo says that they will only freeze accounts if there is a balance of more than $5,000 in the account, but you are probably better off to not risk it.

A Federal Court in Florida recently upheld Wells Fargo’s Policy in In re Young, 439 B.R. 211 (Bankr. M.D. Fla. 2010).  Other jurisdictions have rejected the practice, but Wells Fargo is now appealing those decisions.  However, Wells Fargo is still continuing the policy of freezing accounts while they appeal.

 

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

 

Congress adopted the Fair Debt Collections Practices Act (FDCPA) among growing concerns of abusive, deceptive, and unfair debt collection practices by debt collectors.  The most important thing to remember about the Act is that it only applies to third party debt collectors.  This means that the provisions and protections of the Act do not apply to the actual lender or the bank itself, but it does apply to collection agencies and collection attorneys who are contacting you on behalf of the bank or primary lender.  Among other protections, the Act provides that a debt collector may not communicate with a consumer:

1. Before 8:00am or after 9:00 PM.
2. If the debt collector knows that the consumer is represented by an attorney.
3. At the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.

The act also forbids harassment, abuse, and false or misleading statements.   A debt collector also cannot use obscene language or threaten you with violence or criminal prosecution.   You cannot go to jail for not paying a debt.

One of the strongest provisions of the FDCPA is found under section 1692(c).  Pursuant to this section if a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector needs to cease communication with that debtor or face penalties.   Also, once you inform a debt collector that you are represented by an attorney, he cannot communicate with you any further.

Please keep in mind that although the FDCPA limits the collection behavior of debt collectors, the original creditor or debt collector will still be able to pursue a judgment in a court of law.  At that point your only remedy is to contest the suit or to try to have the debt discharged pursuant to Bankruptcy Law.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

 

One of the most effective and financially damaging ways in which a creditor can collect a debt is through a process known as garnishment.  Garnishment is a court-ordered method of debt collection in which the personal property of a debtor, in the hands of a third party, is seized in order to satisfy a debt.  Generally, garnishment begins after a creditor receives a judgment, and then a writ of garnishment from the court to collect what is owed. 

 The most common form of garnishment is wage garnishment which is usually accomplished in two ways.  The first is by seizing your bank account in which the creditor is able to gain access to your account and make withdrawals directly from it.  The second method is when the creditor has received a court order allowing it to collect a percentage of your wages directly from your employer in order to satisfy the debt.

 Although the seriousness of wage garnishment cannot be understated, in most cases the debtor will at least have some notice that his wages might be seized, or that his bank account is about to be frozen.  Thanks to Due Process protections, a creditor cannot garnish your wages without first having a judgment.  This means that the creditor needs to have filed a successful lawsuit before it can move for the writ of garnishment to be issued.  Once the writ of garnishment has been issued, however, the debtor will usually not have further notice until after the wages have been withheld, or a hold has been placed on a bank account.

 When a writ of garnishment is ordered, it is sent directly to the debtor’s employer ordering it to withhold a certain percentage of the debtor’s income.  If the employer fails to withhold this money then the employer itself is potentially liable for the full amount.  Even though an employer is legally not allowed to discriminate against an employee who is having his wages garnished, it is still a potentially embarrassing situation for both parties.  Also, we have found that many employers find this process to be troublesome in many ways as abiding by the court’s judgment often requires extra work for the employer, and can be quite time consuming.

 Debtors do have some remedies at their disposal in order to help reduce the effects of garnishment.  The most common method is to try to file for one of Florida’s garnishment exemptions from the court that issued the writ.  The most generous of these exemptions is Florida’s Head of Household exemption which potentially allows a debtor, who earns more than 50% of his household income, to fully exempt his wages.  It is not uncommon, though, for a debtor to learn that they have waived at least a portion of this exemption when they applied for the loan or line of credit.  Another complication that arises is with small business owners, as a lot of times their income is not considered to be wages under the definition of the statute.

 Filing for bankruptcy protection is also another option to stop garnishments.  The moment that you file a bankruptcy petition, the bankruptcy court will issue an order called an “automatic stay.”  The automatic stay requires all creditors to at least temporary halt their efforts of debt collection.  This can sometimes last the duration of the case, or until the bankruptcy judge signs an order lifting the stay.  This means that all phone calls, lawsuits, foreclosure actions, and garnishment needs to immediately stop or your creditors will face legal action.  Futhermore, by filing for bankruptcy there is a good chance that the judgment can be cancelled, and the debt owed to that judgment creditor will be discharged along with your other debts.

 There are many different defenses to garnishment available to debtors that are facing a lawsuit or have creditors who have already received a judgment.  Many of these defenses are usually quite complicated.  If you are contemplating pursuing an exemption or filing for bankruptcy, it is important to contact an experience attorney who can help guide you through your options.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation.  He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida.  He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.

All too often our clients come to us and are unaware of the actual process of filing for bankruptcy protection.  We have simplified the steps of a bankruptcy into a few core stages along with what we require of you as part of this process.

CHAPTER 13 FILING ROADMAP

Pre-Filing

1.  Pay attorney’s fees in full, gather all required documents, schedule an appointment for a Questionnaire Review, and write down questions for the attorney.

2. Provide any additional documents requested at the Questionnaire Review, take the Credit Counseling Course at Debthelper.com.  If you have an operational business, please provide our office with the business’s bank statements.  Additionally, please annotate all non-business related (personal) deposits and withdrawals.  Our office will give you a call to schedule an appointment to sign your bankruptcy petition once it is ready.

3. On the date of filing your bankruptcy petition our office will give you a call to get the current balances for all of your bank accounts (personal and business). You will be provided with the case number once your bankruptcy petition is filed.

Post-Filing

4.  About a week after your petition is filed, a bankruptcy Trustee will be assigned and a date for the 341 Meeting of Creditors will be automatically scheduled by the court.  The meeting will usually take place about 30-45 days after filing.  You will receive a letter from our firm reminding you of the date, time, and place of the meeting.  You must attend the meeting in person and bring your original Social Security card and Driver’s License to show the Trustee.  At the meeting the Trustee will ask you questions about your assets, liabilities, income, expenses and other questions pertaining to your specific case.  Please be familiar with your monthly expenses such as food, home maintenance, and medical expenses.

5.  Your payments to the Trustee will start in about 30 days from the date of filing your petition.  You will receive a letter from the Trustee (Jon M. Waage) indicating the amount, date of payment, and the address where to send the payments.  The next step in a Chapter 13 filing is a Confirmation of Your Plan Hearing.  You do not have to attend this hearing.  The attorney handling your case will attend the hearing on your behalf.  Prior to the confirmation hearing the Trustee will file a Recommendation concerning your case.  Usually the Recommendation is Unfavorable and restates the issues that still have to be dealt with in your case (for example if your income is understated or if the trustee feels that your expenses are too high or luxurious; you may have to show proof of particular expenses in order for the Trustee to allow those expenses, or if any amendments need to be filed in your case).  Your creditors have approximately five months from the date of filing to file claims in your case.  The first Confirmation Hearing is usually continued for a variety of reasons.  If your case is for 100% repayment, you need to wait until the last date for your creditors to file a claim in your case to see how many claims were filed.  Once your case is confirmed, your payments to the Trustee are determined and in about a month you will receive an Order of Confirmation spelling out the contents of your plan, its duration, and who is entitled to receive the distribution of funds from the Trustee.  You can set your payments to automatically withdraw from your bank account.  Please note that you might be required to surrender your tax refunds to the Trustee for the duration of your Chapter 13 Plan.

All too often our clients come to us and are unaware of the actual process of filing for bankruptcy protection.  We have simplified the steps of a bankruptcy into a few core stages along with what we require of you as part of this process.

CHAPTER 7 FILING ROADMAP

Pre-Filing

1. Pay attorney’s fees in full, gather all required documents, schedule an appointment for a Questionnaire Review, and write down questions for the attorney.

2. Provide any additional documents requested at the Questionnaire review, take the Credit Counseling Course at Debthelper.com, and appraise your jewelry and vehicles that you plan to keep. Our office will give you a call to schedule an appointment to sign your bankruptcy petition once it is ready.

3. On the date of filing your bankruptcy petition our office will give you a call to get the current balances for all of your bank accounts (personal and business). You will be provided with the case number once your bankruptcy petition is filed.

Post-Filing

4. About a week after your petition is filed, a bankruptcy Trustee and a date for the 341 Meeting of Creditors will be automatically scheduled by the court. The meeting usually will take place in about 30-45 days after filing.  You will receive a letter from our firm reminding you about the date, time, and the place of the meeting. Any additional documents required by the Trustee have to be provided to our office fifteen (15) days prior to the meeting with the Trustee. You have to attend the meeting in person and bring your original Social Security card and Driver’s License to show to the Trustee. At the meeting the Trustee will ask you questions about your assets, liabilities, income, expenses and other questions pertaining to your specific case.

5. Please provide our office with additional documents that the Trustee might request after the Meeting of Creditors. The Trustee has 30 days to file an objection to a claim of exemption in your case and arrange an appraisal of your personal property. This appraisal might take some time so please be patient.  The court will consider you over-exempt when you want to keep non-exempt assets, or want to keep more property than you are allowed to keep under the applicable Florida or Federal Law. The Trustee will then send us a Stipulation for Repurchase of Assets which is a letter stating how much money, if any, you are over-exempt in your case. The total amount of this overage will have to be repaid over the next 12 months in equal payments or you can repay the whole amount at once. You will have an option to surrender some of the assets if you do not plan to keep them.  If you are considered over-exempt, you will also have to surrender a whole or a pro-rated portion of your tax refund to the Trustee. We will notify you as soon as we receive this letter from the Trustee, but it might take some time so please be patient.

6. Discharge!

After you’ve submitted your Free Bankruptcy Calculator, please take the time to gather together the following, which will be necessary for your first consultation:

• Proof of income for the last 6 months: Please bring pay stubs from work or proof other income, government benefits, unemployment, social security benefits, pensions, workers’ compensation and child support.
• The value of your vehicles and a statement of your payoff amount to the lender.
• Most recent credit card statements or a recent credit report.
• Any judgment or garnishment that has been issued against your personal finances.
• Your last 6 months of bank statements from all of your accounts.
• Your last year’s income tax return with attachments: You will be required to provide all of your income tax information from the past 3 years, including W-2s, 1099s, and all other attachments.
• Payoff statements for your mortgage, and missed payment statements, if any.
• Foreclosure documents.

Martin Law Firm is committed to assisting people with their debt problems, and helping them file for Bankruptcy relief under the United States Bankruptcy Code.

One of the underlying themes of the bankruptcy laws in Florida is that a debtor should be allowed a “fresh start” after successfully completing the bankruptcy process. Consistent with this theme has been the development of Florida’s bankruptcy exemptions. When an individual files for bankruptcy, a bankruptcy estate is created. When an item is claimed as exempt, in essence that item is removed from the bankruptcy estate and is no longer available to satisfy the claims of the creditors.

Many people go into the bankruptcy process terrified that they will lose their home, cars, or other personal property. Exemption statutes permit a debtor to keep a certain amount of property, and are one way that individuals can protect their assets when they file for a Chapter 7 or 13 bankruptcy.

Although the Federal bankruptcy law provides a list of uniform exemptions, it allows for individual states to opt out of these exemptions. Florida has taken advantage of this provision and has developed its own exemptions independent of the bankruptcy code. In order to be eligible for Florida’s bankruptcy exemptions, an individual needs to have been a permanent resident of the state of Florida for two years immediately preceding the bankruptcy filing date. If you have not been a permanent Florida resident for this time period, your bankruptcy exemptions will be those from the state in which you were previously domiciled.

Florida is considered by many to have generous bankruptcy exemptions. The most notable of which is Florida’s Homestead Exemption. Guaranteed in the state constitution, with some exceptions, Florida has an unlimited homestead exemption which allows you to keep your home out of the bankruptcy estate. In order to qualify for this exemption, you must have owned your home for more than 1,215 days. If you have not owned your residence for this amount of time, Florida still allows you to claim this exemption, however this amount is limited to $136,875 of equity per person. If a married couple files together, and they both are on the deed to the house, this amount is doubled. The Homestead Exemption, however, is limited to homes that are situated on a ½ an acre of land if you live in a municipality or 160 acres if you live outside of a municipality.

Florida law also provides for an automobile exemption which allows you to keep $1,000 worth of equity in a vehicle. There is also a general exemption which can be applied to any of your personal property. The value of this exemption depends on whether you take advantage of the Homestead Exemption or not.

If you use the Homestead Exemption to keep your home, you are limited to $1,000 of personal property per person. However, if you are surrendering your home, you are given an additional exemption of $4,000 for a total exemption of $5,000 for personal property.

Our clients are often surprised to learn that a lot of other property interests are also exempt from the bankruptcy estate, and thus protected from creditors. Certain types of life insurance policies along with retirement plans might be exempt from the bankruptcy estate. With some exceptions, this includes 401k, IRAs, and most pension plans. Bankruptcy laws can also prevent creditors from seizing your retirement, disability, and other types of government assistance that you might receive in the future.

Although Florida does have generous bankruptcy exemptions, in many cases there will be non-exempt property. The non-exempt property becomes part of the bankruptcy estate and a trustee will be appointed to administer it. The non-exempt property that has any value will then be sold and repaid back to the creditors.

Applying exemptions correctly is one of the most important aspects of preparing a bankruptcy petition. At the Martin Law Firm we analyze every case carefully in order to maximize the amount of property that you are allowed to keep under the bankruptcy laws. Making sure that you receive the maximum amount of exemptions is just one of the ways that we can protect your assets when you file for Chapter 7 or Chapter 13 bankruptcy.

About Bankruptcy

Bankruptcy is a choice that may help if you are facing serious financial problems. You may be able to cancel your debts, stop collection calls, and get a fresh financial start. Bankruptcy can help with some financial problems, but does not guarantee you will avoid financial problems in the future. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won’t ever need to file bankruptcy again!

How Long Will Bankruptcy Stay on My Credit Report?

The results of your bankruptcy case will be part of your credit record for ten (10) years. The ten years are counted from the date you filed your bankruptcy.

This does not mean you can’t get a house, a car, a loan, or a credit card for ten years. In fact, you can probably get credit even before your bankruptcy is over! The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems.

Debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with the credit reporting agency if this information is not correct.

Which Debts Do I Still Owe After Bankruptcy?

When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them.

However, certain types of debts are NOT discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:

• Alimony, maintenance, or support for a spouse or children.
• Student loans. Almost no student loans are canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.” Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled.
• Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt. You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees.
• Most taxes. The vast majority of tax debts can not be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss them with your lawyer.
• Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.
• Drunk driving injury claims.

Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?

Yes and No. The term “secured debt” applies when you give the lender a mortgage, deed of trust, or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.

Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.

But, and this is a big “but,” the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on your home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.

For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.

What Is Reaffirmation?

Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt. If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.

Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.

Do I Have to Reaffirm Any Debts?

No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, remember you can always say no.

Can I Change My Mind After I Reaffirm a Debt?

Yes. You can cancel any reaffirmation agreement for sixty days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.

Also, remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.

Do I Have to Reaffirm on the Same Terms?

No. A reaffirmation is a new contract between you and the lender. You should try to get the creditor to agree to better terms such as a lower monthly payment or interest rate. You can also try to negotiate a reduction in the amount you owe. The lender may refuse but it is always worth a try. The lender must give you disclosures on the reaffirmation agreement about the original credit terms, and any new terms you and the lender agree on must also be listed.

Should I Reaffirm?

If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t. The reaffirmation agreement must include information about your income and expenses and your signed statement that you can afford the payments.

If you have any doubts whether you can afford the payments, do not reaffirm. Caution is always a good idea when you are giving up your right to have a debt canceled.

Before reaffirming, always consider your other options. For example, instead of reaffirming a car loan you can’t afford, can you get by with a less costly used car for a while?

Do I Have Other Options for Secured Debts?

You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan. This is your right under the bankruptcy law to “redeem” the collateral.

Redeeming collateral can save you hundreds of dollars. Because furniture, appliances, and other household goods go down in value quickly once they are used, you may redeem them for less than their original cost or what you owe on the account.

You may have another option if the creditor did not loan you the money to buy the collateral, like when a creditor takes a lien on household goods you already have. You may be able to ask the court to “avoid” this kind of lien. This will make the debt unsecured.

Do I Have to Reaffirm Car Loans, Home Mortgages?

If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm. But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake. The collateral is likely to be repossessed or foreclosed anyway after bankruptcy, because your obligation to make payments continues. If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.

If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments. Sometimes lenders will do so if they think the bankruptcy court will not approve the reaffirmation agreement.

And What About Credit Cards and Department Store Cards?

It is almost never a good idea to reaffirm a credit card. Reaffirming means you will pay bills that your bankruptcy would normally wipe out. That can be a very high price to pay for the convenience of a credit card. Try paying cash. Then in a few years, you can probably get a new credit card, that won’t come with a large unpaid balance!

If you do reaffirm, try to get something in return, like a lower balance, no interest on the balance, or a reasonable interest rate on any new credit. Don’t be stuck paying 18/-/21% or higher!

Some department store credit cards may be secured. The things you buy with the credit card may be collateral. The store might tell you that they will repossess what you bought, such as a TV, washer, or sofa, if you do not reaffirm the debt. Most of the time, stores will not repossess used merchandise. So, after a bankruptcy, it is much less likely that a department store would repossess “collateral” than a car lender.

However, repossession is possible. You have to decide how important the item is to you or your family. If you can replace it cheaply or live without it, then you should not reaffirm. You can still shop at the store by paying cash, and the store may offer you a new credit card even if you don’t reaffirm. (Just make sure that your old balance is not added into the new account.)

For example, some offers to reaffirm may seem attractive at first. Let’s say a department store lets you keep your credit card if you reaffirm $1000 out of the $2000 you owed before bankruptcy. They say it will cost you only $25 per month and they will also give you a $500 line of credit for new purchases. What they might not tell you is that they will give you a new credit card in a few months even if you do not reaffirm. More importantly, though, you should understand that you are agreeing to repay $1000 plus interest that the law says you can have legally canceled. That is a big price to pay for $500 in new credit.

What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who can not pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

What Can Bankruptcy Do for Me?

Bankruptcy may make it possible for you to:

• Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.
• Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
• Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility service.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Bankruptcy Can Not Do

Bankruptcy can not, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

• Eliminate certain rights of “secured” creditors. A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to give back the property. But you generally can not keep secured property unless you continue to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal fines, and most taxes.
• Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
• Discharge debts that arise after bankruptcy has been filed.

What Different Types of Bankruptcy Cases Should I Consider?

There are four types of bankruptcy cases provided under the law:

• Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors. Generally, those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they can not avoid or afford to pay.
• Chapter 11, known as “reorganization,” is used by businesses and a few individuals whose debts are very large.
• Chapter 12 is reserved for family farmers and fishermen.
• Chapter 13 is a type of “reorganization” used by individuals to pay all or a portion of their debts over a period of years using their current income.

Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

Chapter 7 (Straight Bankruptcy)

In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.

If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

If your income is above the median family income in your state, you may have to file a chapter 13. Higher-income consumers must fill out “means test” forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they can not file a chapter 7 case, unless there are special extenuating circumstances.

Chapter 13 (Reorganization)

In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property – especially your home and car – which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment added to insure you get caught up on the amount you have fallen behind.

You should consider filing a chapter 13 plan if you:

• Own your home and are in danger of losing it because of money problems;
• Are behind on debt payments, but can catch up if given some time;
• Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income during your chapter 13 case to pay for your necessities and to keep up with the required payments as they come due.

What Does It Cost to File for Bankruptcy?

The court’s filing fees are now $299 to file for bankruptcy under chapter 7 and $274 to file for bankruptcy under chapter 13, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you can not pay it all at once.

If you are unable to pay the filing fee in installments in a chapter 7 case, and your household income is less than 150 percent of the official poverty guidelines (for example, the figures for 2007 are $20,535 for a family of two and $30,975 for a family of four), you may request that the court waive the chapter 7 filing fee. The filing fee can not be waived in a chapter 13 case, but it can be paid in installments.

What Must I Do Before Filing Bankruptcy?

You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed.

Most approved agencies charge between $40 – $50 for the pre-filing counseling. However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay. If you can not afford the fee, you should ask the agency to provide the counseling free of charge or at a reduced fee.

It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor, who can not give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, our attorneys can offer a range of other suggestions. We can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov.

What Property Can I Keep?

In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. If you moved to Florida from a different state within two years before your bankruptcy filing, you may be required to use the exemptions from the state where you lived just before the two-year period.

The amounts of the exemptions are doubled when a married couple files together. Again, you may be required to use state exemptions which may be more or less generous than the federal exemptions.

In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

You also only need to look at your equity in property. That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you have only $10,000 in equity. You can fully protect the $50,000 home with a $10,000 exemption.

While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.

What Will Happen to My Home and Car ?

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13.

However, some of your creditors may have a “security interest” in your home, automobile, or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

In a chapter 13, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use chapter 13 to catch up on back payments and get current on the loan.

There are also several ways that you can keep collateral or mortgaged property after you file a chapter 7 bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

Will Bankruptcy Wipe Out All My Debts?

Yes, with some exceptions. Bankruptcy will not normally wipe out:

• Money owed for child support or alimony;
• Most fines and penalties owed to government agencies;
• Most taxes and debts incurred to pay taxes which can not be discharged;
• Student loans, unless you can prove to the court that repaying them will be an “undue hardship”;
• Debts not listed on your bankruptcy petition;
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
• Debts resulting from “willful and malicious” harm;
• Debts incurred by driving while intoxicated;
• Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

Will I Have to Go to Court?

In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. If married and filing bankruptcy jointly, both you and your spouse must appear.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear at a hearing. In a chapter 13 case, you may also have to appear at a hearing when the judge decides whether your plan should be approved. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.

Can I Own Anything After Bankruptcy?

Yes! You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

Will Bankruptcy Affect My Credit?

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.

The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed. But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to build new credit.

What Else Must I Do to Complete My Case?

After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. Many of the course providers give you a choice to take the course in-person at a designated location, over the Internet (usually by watching a video), or over the telephone. You’ll find on this website a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov. If you can not afford the fee, you should ask the agency to provide the course free of charge or at a reduced fee. In a chapter 7 case, you should sign up for the course soon after your case is filed. If you file a chapter 13 case, you should ask your attorney when you should take the course.

What Else Should I Know?

Utility services – Public utilities, such as the electric company, can not refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.

Discrimination – An employer or government agency can not discriminate against you because you have filed for bankruptcy. Government agencies and private entities involved in student loan programs also can not discriminate against you based on a bankruptcy filing.

Driver’s license – If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Co-signers – If someone has co-signed a loan with you and you file for bankruptcy, the co- signer may have to pay your debt. If you file under chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan.